Office rents for Grade A offices in the CBD have been higher than the levels that were recorded in 2021, based on the data collected from CBRE Research. In a December 16 announcement, the company states that Core CBD Grade-A office rental rates have risen to $11.70 per month, psf at the end of 2022. The full-year growth in rent is at 8.3%, exceeding the 3.8% growth recorded in 2021.
The growth rate was helped by the expansion to Guoco Midtown, which boosted the island’s net absorption to 1.15 million sq feet by 2022, which is 3.6 times more over 2021’s total net absorbtion that was 0.32 mil sq feet. The islandwide vacancy rate also decreased by 6.3% as of end-2021 to 5% at 2022’s end. The net absorption for 2022 is 17.9% higher than the 10 year average annual net absorbance of 0.97 mil sq ft in the period between 2013 and 2022. CBRE.
David McKellar, CBRE’s co-head of office services Singapore David McKellar, CBRE’s co-head of office services, Singapore market’s growth comes on backdrop of the continued momentum for returning to office. “The gradual relaxation of policies that were in place since the end of April also prompted tenants to take positive action to adapt their needs for real estate in their businesses,” he explains.
Yet, CBRE notes that office market sentiment is beginning to “turn cautious” towards the closing of 2022. Demand has slowed from larger occupiers, specifically those from the tech sector. “With these recent layoffs as well as the hiring cutbacks from the tech industry some tech firms have already begun to consider having a smaller footprint in order to lower the cost of real estate,” remarks Tricia Song who is the head of research for Southeast Asia at CBRE.
Song expects that the shadow space will be able to grow from 0.2 million square feet in 3Q2022 to 0.7 million square feet next year. Some tech firms have offered offices on an early surrender basis. In the past 2 years, technology firms have contributed around 40% between 40 and 50% from the overall demand for gross leasing in Singapore.
Song adds that the pace of office rent growth has decreased. In the 4Q2022 period, Core CBD Grade A office rents climbed 0.9% q-o-q, easing from the 2.7% q-o-q growth registered in the previous quarter. Therefore, CBRE has cut its 2023 rental forecast. It is now predicting Core CBD Grade A office rents to rise by one% annually in comparison to its earlier estimate of 4% 5-% growth.
The rate of vacant properties could increase in 2023 , on the result of lower demand. McKellar suggests that landlords with empty spaces or “immediate time availability” might need to think about terms that are more competitive in order to stand out from more competitors in 1H2023.
With the current softer market conditions, office owners may reconsider their needs for office space. “In Particular, the shift towards quality will continue because companies are more aware of their employees’ wellbeing and health after the pandemic,” CBRE states.
Despite the uncertainty in the near-term, CBRE believes office rental growth prospects for the long time frame are optimistic as the demand is “relatively minimal”. Additionally, Singapore’s position as a regional business and technology centre within Asia Pacific will continue to help the market.